Even if they go mostly unnoticed, industrial businesses are the backbone of our country. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the market seems convinced that demand will slow. Due to this bearish outlook, the industry has tumbled by 12.6% over the past six months. This drawdown was worse than the S&P 500’s 6.4% decline.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Taking that into account, here is one industrials stock boasting a durable advantage and two we’re swiping left on.
Two Industrials Stocks to Sell:
DXP (DXPE)
Market Cap: $1.24 billion
Founded during the emergence of Big Oil in Texas, DXP (NASDAQ: DXPE) provides pumps, valves, and other industrial components.
Why Does DXPE Give Us Pause?
- Muted 7.3% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Estimated sales growth of 2.8% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin dropped by 7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
DXP’s stock price of $83.14 implies a valuation ratio of 18.3x forward price-to-earnings. To fully understand why you should be careful with DXPE, check out our full research report (it’s free).
Enpro (NPO)
Market Cap: $2.97 billion
Holding a Guinness World Record for creating the world's largest gasket, Enpro (NYSE: NPO) designs, manufactures, and sells products used for machinery in various industries.
Why Are We Cautious About NPO?
- Annual sales declines of 2.8% for the past five years show its products and services struggled to connect with the market during this cycle
- Issuance of new shares over the last two years caused its earnings per share to fall by 3.9% annually, even worse than its revenue declines
- Underwhelming 6.3% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $146 per share, Enpro trades at 18.4x forward price-to-earnings. Check out our free in-depth research report to learn more about why NPO doesn’t pass our bar.
One Industrials Stock to Buy:
CSW (CSWI)
Market Cap: $5.02 billion
With over two centuries of combined operations manufacturing and supplying, CSW (NASDAQ: CSWI) offers special chemicals, coatings, sealants, and lubricants for various industries.
Why Are We Bullish on CSWI?
- Impressive 17.8% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 21.9% outpaced its revenue gains
- Strong free cash flow margin of 15% enables it to reinvest or return capital consistently, and its recently improved profitability means it has even more resources to invest or distribute
CSW is trading at $304.85 per share, or 32.1x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
